CBS INC. TO SELL MAGAZINE UNIT TO ITS EXECUTIVES

By GERALDINE FABRIKANT

Published: July 14, 1987

CBS Inc., which has undergone a significant restructuring in the last year, said yesterday that it had agreed to sell CBS Magazines for $650 million to a group led by the unit's senior executives.

The sale, which will end the company's involvement in publishing, is the largest sale of an important CBS asset since Laurence A. Tisch took over as chief executive last September. In October, the company sold its educational and professional publishing operations to Harcourt Brace Jovanovich Inc. for $500 million. $1.6 Billion in Cash The sale will leave CBS with about $1.6 billion in cash, most of it from sales of assets, including its St. Louis television station and its music publishing unit. The company has also been cutting costs, which has led to layoffs and budget tightening.

Previously, CBS had said that it would plow some of its cash back into its broadcasting and record businesses. Analysts have speculated that the company could also use the cash to buy a television station, reduce debt further or buy back stock.

Woman's Day is perhaps the best-known publication of CBS Magazines, whose president, Peter G. Diamandis, is part of the buyout group. The unit also publishes Modern Bride, Car and 8Driver, Road & Track, Field & Stream, Popular Photography and 12 1 other publications. A number of CBS's magazines were acquired in 1985 from the Ziff-Davis Publishing Company in a highly criticized transaction. Over several years, the company hasd also sold some of its other magazine holdings, including Family Weekly, World Tennis and Cuisine.

Noting that the magazine industry has been in the doldrums for two years, Wall Street analysts described the sale as a smart move for CBS. The company will report a net profit of close to $200 million on the deal.

On the New York Stock Exchange yesterday, CBS's stock rose $2 a share, to $181.50, in moderate trading.

Edward Atorino, a media analyst at Smith Barney, Harris Upham & Company, said, ''It is not a bargain price,'' expressing a view that was echoed by others.

''It will be a challenge for the new management to cut costs and to overcome a fairly heavy interest cost,'' he added. ''They may have to do some restructuring, which might ease the burden.'' Assets of $438 Million

''How much is good will or other items is hard to tell,'' he said. ''Certainly the largest publication, Woman's Day, has been owned for years and has a low cost base. The Ziff publications were bought more recently, and how those costs get allocated is not clear.''

CBS has been criticized as having overspent dramatically to purchase 12 special-interest consumer magazines from Ziff-Davis for $362.5 million. That perception was aggravated when CBS sued Ziff-Davis, contending that the company had breached its contract by misrepresenting financial information. A fraud accusation by CBS was dismissed, but the breach-of-contract action still stands. That suit is still pending. The sale of CBS Magazines was approved in principle by the company's board last Wednesday, although details were still being worked out over the weekend.

There had been rumors for some months that the division would be sold, and several unsolicited recent bids, including a $600 million offer from Hachette, the French publisher, were reported. Like many other European publishers, Hachette apparently wanted to enter the American market at a time that when the dollar was weak and other foreigners were expanding their American holdings. Sale Was No Surprise

CBS had said that it was not planning to sell more assets, but the magazine unit's sale came as little surprise to industry experts. In the second quarter, its the unit's operating income of $6.1 million represented just 3 percent of the CBS total.

In addition, the magazine unit whas never been perceived as being as crucial to CBS as the broadcasting or records group. Both of those units were started by William S. Paley, the company's founder, who reassumed the chairmanship last fall when Thomas Wyman was ousted as chairman and chief executive.

The magazine division began almost incidentally in 1967 with the company's acquisition of the book publisher Holt Rinehart Winston, which owned Field & Stream. In 1971, CBS acquired Bond/Parkhurst Publishing, which owned Road & Track and Cycle World. The magazine operation became a full group a year later and acquired Fawcett Publications in 1974.

The sale will be financed by Prucapital Inc. and Prudential-Bache Interfunding, which are merchant banking subsidiaries of the Prudential Insurance Company of America.

Mr. Diamandis yesterday said that he was very pleased with the deal. He said the company would generate operating cash flow of $48 million this year. In that case it would mean that Mr. Diamandis and his group are paying 13.5 times cash flow, a measure that is commonly used in evaluating the price paid for a media property. By this standard, analysts said, the buyout group is paying a full, but not extraordinary, price for the magazines. Cost Cutting Expected

Mr. Diamandis also said he believed the cash flow could be increased by as much as $15 million simply by cutting costs. Mr. Diamandis He said, ''We have a lot of people who generate numbers for CBS to analyze.''

Mr. Diamandis said that selling shares in the magazine company to the public was a possible strategy for paying down the debt in the future but that he had no plans to sell various assets at this time.

John Mack Carter, editor in chief of Good Housekeeping, noted that the rival Woman's Day had been doing better recently in the crowded market for women's service magazines. Because of the intense competition, the bulk of the women's magazines have been selling advertising through negotiated deals with advertisers rather than through the strict use of rate cards, in which the publication sets the rate and the advertiser must take it or leave it. He said that while Woman's Day had been among those selling '''off rate card,'' the magazine had been particularly aggressive and successful in such sales. THE MAJOR CBS MAGAZINES Shown below: the magazines, their circulation and frequency of publication. Total circulation is 14.9 million. In addition, CBS Magazines has three trade publications and numerous specials and annuals with circulations ranging from 150,000 to 2 million. Woman's Day alone has 21 specials with an average circulation of 400,000. Adventure Travel 160,000, Bi-annual American Photographer 253,148, Monthly Audio 151,458, Monthly Backpacker 174,126, Bi-monthly Boating 191,151, Monthly Car and Driver 912,000, Monthly Cycle 406,972, Monthly Cycle World 313,599, Monthly Field & Stream 2,400,608, Monthly Flying 330,608, Monthly Home Mechanix 1,204,771, Monthly Modern Bride 326,268, Bi-Monthly Popular Photography 850,058, Monthly Road & Track 711,657, Monthly Skiing 451,537, 7 Times Yearly Stereo Review 552,869, Monthly Woman's Day 5,687,838, 15 Times Yearly Yachting 135,216, Monthly